By Simon Bond

Now that the penny has dropped that it’s not possible to make a living when everything is given away, now that people have worked out the cost of free is more than they bargained for the tide will suddenly turn as capacity gets wound back and price rises return. 

As the boomers fade into black and the Millennilas step forward this may just herald the age of abundance of manufacturing goods drawing to a close as Millennials are not buying what the boomers are selling. The deflation of global manufactured goods prices over the past 4 years marks the end of abundance not the beginning.

We continually make the point that this generation have far different spending habits and consumption patterns, and if all of a sudden we see a very weak US dollar, combined with soaring commodity prices and wage increases caused by social and political pressure this could easily push inflation rates well above central bank targets.

If the U.S. does experience a sudden inflation shock, the implications are monumental because market participants are almost entirely positioned for “lower for longer”, and an inflation-induced interest-rate shock would be significant to say the least. Inflation in emerging markets has risen sharply in the last year and lower oil prices have been camouflage to price increases in other areas such as healthcare costs and services.

The great unwritten story on inflation is what is called “shrinkflation”, where producers reduce contents or size yet keep price the same. Dr. Pippa Malmgren, author of Signals: The Breakdown of the Social Contract and the Rise of Geopolitics, writes often on this subject and says that shrinkflation is a precursor to price hikes and inflation pressure—and this occurred in the 1970s as well.

Last week in the UK The Times and The Daily Telegraph wrote extensively on this subject, which no doubt will garner more attention. The headline from The Telegraph was “Shoppers short-changed on toilet paper in supermarket ‘rip-off’”.

The Times wrote as follows: Britain’s leading toilet roll manufacturer has been caught shortening the length of its loo paper. A standard four-roll pack of Andrex has dropped from 240 to 221 sheets but the price has not been reduced. Customers still have to spend an average of £2. Andrex’s “puppies on a roll” brand has also cut back its paper, losing 31 sheets since 2006, according to research by Which? . . The consumer group said that it had found dozens of examples of groceries and toiletries getting smaller but the price staying the same or, in some, cases actually increasing.

It said the size of a packet of McVitie’s dark chocolate digestive biscuits had fallen from 332g to 300g, a 10 per cent reduction, but the price in Tesco had gone up by 10p to £1.69…The consumer group said that when it contacted the brands about its research, most of them said that it was up to the supermarkets to set the price. However, the manufacturers refused to disclose if they had charged the supermarkets a lower wholesale price for their smaller products…

Analysts said that suppliers tend to cut size because they are under pressure to maintain profits to keep shareholders happy and believe customers prefer smaller products to price increases.